Facts:
- The yields of German bonds were clearly rising on the wave of announcements about the European Union taking over the burden of military support for Ukraine, which was to incur historic defense costs for this purpose
- The prospect of greater spending and the abolition of the debt limit in Germany weakened the Bund quotes (an increase in yields) and despite maintaining investment plans, their scale may now be much smaller than assumed after yesterday’s information about the agreement between Ukraine and the USA on rare metals, military support and a possible ceasefire with Russia
- In such a situation, after the last wave of speculation, we may be dealing with a revaluation of previous assumptions and thus a rebound in the prices of German Bunds
Recommendation
Long position on BUND10Y at market
- TP2: 130.50
- TP1: 128.30
- SL: 125.00
Opinion:
The yields of German bonds were clearly rising on the wave of announcements about the takeover of the burden of support Ukraine’s military by the European Union, which was to incur historic armament costs for this purpose. The prospect of greater spending and the abolition of the debt limit in Germany weakened Bund quotes (an increase in yields) and despite maintaining investment plans, their scale may now be much smaller than assumed after yesterday’s information about the agreement between Ukraine and the US on raw materials, military support and a possible ceasefire with Russia. In such a situation, after the last wave of speculation, we may be dealing with a revaluation of previous assumptions and thus a rebound in the prices of German Bunds.
However, we recommend that investors exercise particular caution regarding the asset, given the high volatility characteristic of the instrument. We recommend taking into account the take profit and stop loss levels for this transaction (they are based on the psychological zone of 125.0 (stop loss) and the area of local maximums of consolidation zones (take profit; zones 128.3 and 130.5).
Methodology and assumptions:
The recommendation is based on the fundamental analysis of the German debt market, technical analysis of the chart and price action of BUND10Y. The target level and the stop loss order are placed in the zone of previous price reactions of support and resistance. You can read more about this methodology here:
Soruce: xStation 5
